it was a wake up call for watchdogs why has it taken regulators so long even since then to get the ball rolling and why not focus on more aggressively and consistently enforcing the regulations already on the books when it comes to high frequency trading we asked really if you look at it i think went to training has been around since long before the flash crash that was just the first time we really were made aware of the public at large and what the consequences of it can be but really it's been growing since the eighty's so why have regulators been seemingly late to the game or in the best case scenario really reactive on this issue i mean now high frequency trading a seventy percent of volume. well you mean you said it right there i mean because government is reactive i mean that if i have to think about what my job is and what i try to bring that's different to government and this is just one of the things but it is that we can't be reactive we can't just that's called tombstone mentality when you wait for a disaster in a narrowing you know circumstance you wait for

a plane crash before you put something in place in markets you wait for a flash crash or or even something like hurricane sandy would shut down some markets we need to be but you need to be looking around the corner and be nimble and quick and that's just for government in general because they are reactive like you say but with high frequencies traders these traders that i called cheetahs because they're so fast fast fast they really have grown exceptionally fast in the last several years as you know the flash crash may sixth two thousand and ten sent a wake up call that these markets could definitely be roiled big time if we don't watch out so i've called for several things one unbelievably they're not even required these cheetah traders to be registered to they need testing they're not required required to have their programs tested before they're put in the live production environment we also need to have kill switches in case these cheetah programs go feral and finally we need to find these guys if they do something that's wrong. if they violate the law by the second. i mean like by the day hundred

forty grand by the day by the violation but these guys could make millions in seconds and so we should they have our policy and fine by the second also lauren ok i totally hear you let's go into a little bit more of how this works first backing up to five crash was the wake up call i totally hear you but even after the flash crash i know because scott patterson who wrote the book dark pools he looked at this very closely and i interviewed him and he was out a credit suisse traders forum after the flash crash where all these algorithmic h.s.t. traders were worried they played the obama sound bite where he said i didn't go to washington to help wall street fat cats and they were born each other we have to rein it in or else regulators are going to come down on us and that it's been a year or since that even happened and we just now seen some efforts with the new york stock exchange finite capital but why didn't we see regulatory efforts sooner it seems like even regulators underperformed wall street's own expectations well

it's the same answer as before really and by the way shout out to scott patterson not only his first book the koran but the new book dark pools just fanatic fantastic reading for anybody who's interested in high frequency traders it's because government is just reactive and you would have thought that the flash crash would have been enough to instigate some reaction but we've got this monumental dodd frank was there four hundred different rules that agencies are supposed to do and so i don't think the high frequency traders have received the attention they deserve even though as you note we have problems all the time i mean just like we saw in the stock market where there was a computer glitch that had two hundred some stocks that when you mentioned nasdaq to the with the problems with the i.p.o. and facebook and knight capital i mean the list goes on and on and on technology always isn't what it should or could or would have been and we need to do better as regulators and that's why i think the things i've called for a lot. and are pretty pedestrian but important first steps otherwise these cheetahs

and it may end up on the endangered species list yeah well i think a lot of people would want to see that but first i do have some questions to follow up with so we recently did see the n.y.s.e. fined for sending data to proprietary feeds faster than the consolidated ones but other exchanges are guilty of this according to nan x. which is a firm that monitors home market data throughout the day for example you mentioned facebook on may eighteenth nasdaq's quote was said to the drag feed one hundred twenty milliseconds faster than its consolidated feed and you know milliseconds callinan similarly regulators find holden holder brothers an h f t firm for the manipulative activity known as cross market layering again identified many other instances of this occurring in the market so you're calling for more regulation and enforcement per second but why have we not seen more enforcement actions just right now as it stands but we seem so many forested actions but it's really a matter of putting the rules in place i mean i am i have much to catch the bad

guys don't get me wrong and we don't catch enough of them and when we catch them we don't find them enough so i'm with you one hundred percent but i'd rather stop the things before they take place i mean i rather just ensure that we know who people are so for example when i talk about they're not even required to register the largest cheat a traitor is is a cheat a trading for in prague czechoslovakia they were the number three cheat a traitor by volume they were at the chicago mercantile exchange number three and we could get their books and records if we thought they did something untoward i mean they're from chuckle slovakia they're going to you know they're going to flip us the boat may could care less what we want so we need them to be registered that allows access to their books and records and then again as i say we need to kill switches and then we need to find these guys by the second when they do something that's against the law ok and now just to get to my point though of enforcement of what is on the books because many people i talk to say we just need to. and force

what's on the books as they say it actually works here and here is air con satre of next talking about the changes he noticed after the n.y.s.e. enforcement and after knight capital called mary shapiro to cancel their trade and she said no take a listen. we haven't seen significant changes of birds. in responding to you so. he says my suspicion is that the reason the sins of these troops. is because. they're not going to the wall. so he says he actually has seen a visible decline in manipulative activities literally after these enforcement actions came through that was that stood out to them and they look at these markets twenty four hours a day all the time so the question is why we have to regulate more rather than move to just enforce more isn't actual enforcement what instills confidence and get these guys out of the market they're doing the wrong thing. if you can get it again remember what i said about manipulation you got to show intent so that's

a tough hurdle to some of these things you're talking about of course the stock exchange or nasdaq you know bets the securities exchange commission not the commodity futures trading commission you asked if we were investigating a shift to use the answers yeah but i can't tell you much more than that so i'm not saying that there's not anything going on in fact there is but i can't give you any specifics about individual cases ok and just and the question i do want to just get to one more time if the regulations on the books aren't being fully enforced or even even liam forest effectively right now why would you introduce more why would the market or market participants believe that any new proposal whether it's a kill switch or enforcement by the second will actually be enforced you mentioned the resource constraints the lawsuit so why would anybody have confidence this would work. think your premise to your question is correct i think that they are avoiding the law and violating the law except for in some circumstances that may come up that we may be talking about in the future but i don't think they're

willing to lay out their minute manipulating the here's what happens laurent you see all these guys these cheetah traders they have an influence which is disproportionate to their size so even though they make a little market move they make it so fast that they can create volatility that because other people see it as a hurting mentality they say oh i'm going to do that trade to and so you see lots of volatility in markets and speedman markets and people complain about that that doesn't mean that it is a legal that's what the things that i'm calling for we need to make it illegal we need to look at their books and records we need to require the testing so i'm not suggesting that there haven't been moves that have gotten around certain laws i don't know of any specifically i see a lot of people that complain about it but when i look at what the law is and what's been done there is nothing that we've come that's come up so far that we've talked about publicly although i will say that for the future from what i understand four out of the five commissioners on the c.r.t.c. don't actually have trading clearing our exchange experience this may surprise some

people given the complexity of today's markets especially do you believe this is a handicap at all for the staff to see or are something that should change. i mean i think that we are i would be one of those forces who don't have a trading experience but i think i do pretty well given what i have and i think you know for example my goal is look out for the little guy look out for average people and so i'm not sure that i want somebody that i'd want five commissioners who are all about wall street that's i don't think the way to go so i think we have a diverse group we all bring our own things our own different experiences and skill sets to the commission and i think by and large we do pretty well are there is always room for new blood and i hope that happens too there you have it bart chilton commissioner of the c f b i you can get our full interview with him on our website and still ahead we'll hear from professor dan ariely on why executives on wall street might not feel bad about cheating and their customers and in loose

change will spend a few minutes on the fed's most recent minutes we'll discuss later in the show the first here close in market numbers. are three.

sometimes you see a story and it seems so you think you understand it. and then you glimpse something else and you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom hartman welcome to the big picture. the mission of free accreditation free in-store charge is free. range month free is free. to tide free. download free blog as morning video for your media projects and free media and on to our t. dot com. more

news today violence is once again flared up the film these are the images the world has been seeing from the streets of canada. the giant corporations are the day. the mob.

well. science technology innovation all the developments from around russia we've got the future covered. resistance is not the politics but our culture. is couldn't get. its own. cultures of resistance on our team. miss it's him he's a nanny take care my daddy. does

a famous reuse dance and blame is on my c.v. and does my mommy ransom business. welcome back over the past several decades we're certainly seeing companies shift

their focus from prioritizing long term growth to the idea of maximizing shareholder value now this approach not surprisingly has led to increased attention to short term goals which has not only arguably her employees and taxpayers but may also be at odds with the company's long term objectives earlier we talked to behavioral economist dan ariely about the psychology behind increasing shareholder value and how this might be an additional motivation for wall street fraud. we'll give you a little example suppose we did the study we asked people to become c.e.o.'s of bank in some game and for some people we call it don't bend goal is to let civilized shareholder value and so i get it but we didn't do it and don't both banks the shareholder value back in the regular bank didn't do. as they were not doing very well we give the c.e.o. of the unit get to do what's called revenue enhancement in the industry and revenue

enhancement is a nice way to say screw your custom. but they're both keeping checks for longer increasing a.t.m. fees all kinds of small pruett spoken of stuff like that. yes what do people who have the local shareholder value will much more like to keep you know why because they have believed you logical just dislocation mistaken look. this is my goal to slow responsibility shareholder value that's what's allowed flat and i think in descending way people in wars we have a really is it time creating an ideology of the free market insulation who can only shave a few fractions of a second of their trade their free will be fine in taking people who've been. you know so so. rude these so the old you. know the solution for regulating the market i hear you and real quickly before we go one note on on conflict of interest it's interesting you talk also about these issues in academia

where you have professors who are maybe writing papers and and not disclosing that they have received money from from research organizations or organizations that may benefit from those papers and this is something that charles ferguson discussed in inside job and actually it's one of the things that changed after the movie with professors and schools adopting policies towards more disclosure however is disclosure anough because you found some interesting things here so lots of professions are bigger spoke you understand this in charge you think about disclosure academic is one of you know we look at new digital mistakes but turns out disposal is much more tricky than you think and here's the story we merge you have two parties departed it gives advice and the party gets advice is deployed to gives advice disclose acquired gets advice discovered and we see that happening but what's also interesting is that this your deposit is disclosing and you disclose you what they exaggerate you are pretty good lol. so low i asked the question if

this is the part that is closing is the other party the listening party going to discuss more or the part of the disclosing is going to exaggerate more i think least in many of the cases we've seen so far they exaggerate all for well good disco has a different day who advises your financial advisor and they know i have to disclose now i also exaggerate my opinion and that the net benefit disclosure is not helpful now i don't think it means we should not have every disclosure and so on but i do think it's important to realize that disclosure is not the panacea it's not going to fix everything again disposers like a band-aid and saying let's create a system with dupes and disclosure i would much rather create a system from the beginning that doesn't have that many billions a year and then just real quickly before we go you mentioned that that punishment has not necessarily got a target for a crime when you're doing it when you're down that slippery slope but there's

punishment send a message and terms sav the social norms if you're at a wall street c.e.o.'s prosecuted does that send a message to wall street bankers and his firm and others that says hey ok you better be careful could actually people are going to jail for this. year so you know i think it does but i think it probably did their potency of this message last will be a few hours or a few days so think about gary bauer sometime in june garrett barr was sentenced to nine years in prison for insider trading and how many days after that do you think there was a reduction in insider trading i suspect it was very short lived you know it's not in people's mind so you had an example of that happening and maybe it was the office of discussion for a day or two afterwards but once they get that days off what could close up behavior is not the long term thinking it's what people around us so doing i mean you can think about doping in sports and all kinds of other things when we see

examples of. people around us misbehave the deaths actually what's called trolling or behavior what's really fine for us what's acceptable a lot of the book and not so much what's legal or illegal and again you can see more with dan ariely on our website the full interview where he dove into crime and punishment for financial crimes that's on line. all right let's wrap up with loose change we did get fed minutes out this week and obviously there's always so much to opine over afterward so let's start with this an attempt to be more quote unquote transparent the fed is working towards tying your economic outlook to the current employment rate

a move that not everyone seems to be fond of. i think it's a mistake to to tie or our monetary policy to neela to the mast of the change in the unemployment rate oh i think there's a broader array of considerations that we have to think about. i agree. phish will say though that this will allow the public to have a better understanding of the moves that the fed makes. dimitri. tying it to the unemployment rate yeah that's a dumb idea i've said that before it doesn't it doesn't actually accomplish anything why is that because what are you going to do are you going to burst of all we've seen that monetary policy doesn't actually lower unemployment that's a broken model is when you reach the point of debt situation like we have now but also there's just too but in general that we've had people come of this show before and say you should just run up deficits and print as much money as possible until you get the employment rate the unemployment rate down to zero yeah so both it's

ineffective to actually do it accomplish it through monetary policy and also doing it if you could be effective is ineffective in itself because you're focusing on just putting people to work. capacity or filling up capacity as opposed to allowing the economy to readjust to a recession now i hear you also i think it's interesting these fed minutes there was a lot of a juicy stuff and you know we found out that after operation twist they're probably going to want to do more they're going to continue with something with some buying of. instruments. what dawned on me was remember we're talking about if bernanke is going to go out and plays the thunder before his term is over. i just wonder if this is a little foreshadowing it's possible if he is a madman as ben bernanke is called. mark barber's call them and he says you actually think he thought tim geithner was just you know he wasn't that he wasn't a true believer he was just a crony but that ben bernanke actually is like

a true believing idealogue he. also said that he things. go badly inflated inflated ego look i'm going to say one thing these guys have all these toys it's kind of like the military if you give them or get what it's always they're going to use and they want to use them if you give them like an aerial drone in a bio carbon a we know from recent stories dealing with military men they just can't help themselves let's move on the u.s. isn't the only country that's in an election year japan is about to hold their general elections as well the liberal democratic party has nominated former prime minister shinzo it for the job again here's a clip of him explaining how he wants to improve japan's economy. the economy going struggling with. the need to solve these problems creates a stronger fluid. which basically means printing unlimited until they reach the target for inflation. i should also say i see. a.

thing as also really leaving aside some of the other issues with monetary policy it's really also stupid to want to say well we have to bring a stronger part of japan that everyone could be an export or japan can have a weak indefinitely and export forever and have a trade surplus forever someone else is going to be buying those goods and eventually we're going to have to do with china did which is you finance the people that you're selling to eventually you're going to like to have assets that are worthless because you've got bonds of people who can't pay them back so like that's . it's just all part of this that's yeah. this is not completely related but what struck me is monetary policy was being discussed at their debate we don't have any of that in the u.s. i give him kudos for even addressing these issues and they're. going to i don't know what they were so i mean i don't know how much the definition people nor care about monetary policy if they do care more about the u.s.

i'd like to see how much because in the u.s. people don't understand monetary policy. i mean nobody brought it up except for ron paul who was out by the time people were really watching the contentious debate and also what about the fact that these guys are just doing the same thing over and over and over again that's the definition of crazy with sanity really quickly before we go let's do one more story that really does dovetail with insanity because i think these drinks may cause a little bit americans love energy drinks but could they actually kill you. five hour energy has been cited. incident reports with the f.d.a. including thirty that involved serious or life threatening injuries such as heart attacks convulsions and in one case a spontaneous abortion. why. the need for speed is this related to interest rates and it's killing people you know what i mean that's really the only thing i could come up with that just sounds like it would come out of your mouth and i don't know what i'm going to go to do at this time i think of

exhausted the interesting analogy is i just think this is just i mean people people think supplements like crazy in this country i remember there was a revolution of supplements like the mind is there were i think was yes. i don't know i don't love people think these shots i've never taken one of these charges or cannot be good for i just can't believe they're legal i mean i just. it's crazy to me i'm not surprised that there are might be major repercussions from drinking i don't know what i would buy this crap just. what i know why drink that when you have coffee clearly i exhibit. we'll leave it there and go have one because that's all we have. thank you so much for watching be sure to come back on monday and in the meantime you can follow me on twitter at lauren lester you can like our facebook page and there is the address and you can watch any show you missed including the rest of the interviews you saw tonight at youtube dot com slash capital account you can catch our show in h.d. on hulu and you can have yourself a fantastic weekend. download

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